VC Evolution and History
- Part of Series (this doc) Startups Blog, Series & Guide
- Part of Scratchpad Series Scr4US
- Business Management Blog Guide and Series
- Timeline of VC
- Tracking VC funding
- VCs have had HUGE Impact on US Economy
- Arabian, Gujarat Traders
- Venice, Italy trade Cartels
- Lloyds and Shipping Insurance and Venture Funding
- 1800s+ Whaling funding - High Risk, High
- 1890s Wealthy Robber Barons Funded others
- 1940s Family offices and Trusts to exploit Generational Wealth
- 1946 ARD, Boston
- Intel VC deal in 1969
- Apple Computer in 1978
- 1980s VC funds Explosive Growth
- Netscape in 1994
- Late 1990s VCs had POOR Returns
- 2008+ IPOs of Large Big Tech
- Characteristics of VC firms
Timeline of VC
Tracking VC funding
VCs have had HUGE Impact on US Economy
Over the past half century, VC has had an outsized effect on the landscape of the American economy:
Of the U.S. companies that went public between 1974 and 2015, two out of five had been VC-backed. Among technology companies, the VC share is of course much higher. - Stanford Business School study
Arabian, Gujarat Traders
Venice, Italy trade Cartels
Lloyds and Shipping Insurance and Venture Funding
1800s+ Whaling funding - High Risk, High
The roots of VC much farther back, in 19th-century American whaling voyages. Whaling agents intermediated between wealthy investors on one hand and captains and crews on the other. "Like a general partner in a VC firm, the agent typically received a fee for his organizing services plus a share of the voyage's profits." - Tom Nicholas
And like modern VC funds, whaling investments had skewed returns, with 1.7 percent achieving returns of 100 percent or more while, at the other extreme, one-third came up dry with returns of zero or less.
1890s Wealthy Robber Barons Funded others
Later predecessors of VC were wealthy individuals investing in early-stage technology ventures, such as Andrew Mellon in the late 19th century, and institutions created to make such investments for members of wealthy families.
1940s Family offices and Trusts to exploit Generational Wealth
Family offices such as Rockefeller Brothers, founded by Laurance Rockefeller in 1946 to invest for the Rockefeller family. The decade after World War II, Nicholas writes, finally saw the emergence of a version of the VC industry as we know it, though it was still "embryonic" — around a dozen firms in all — each one investing in perhaps five to 10 companies.
1946 ARD, Boston
VC originated with the Boston-based American Research and Development Corp., or ARD.
1957 Digital Equipment was game changer
ARD's investment in pioneering minicomputer maker Digital Equipment Corp. was a milestone moment in the history of computers.
Intel VC deal in 1969
Apple Computer in 1978
1980s VC funds Explosive Growth
With annual commitments to VC funds growing twentyfold.
Government policy developments.
Late 1970s and early 1980s brought cuts in capital gains tax rates.
1979 federal law changed governing pension investments, known as ERISA, allowed pension fund managers greater leeway to invest in VC funds, vastly increasing those investments.
Success of Intel and Apple Computer a huge stimulant.
The success of Apple Computer played a major role in the 1980s VC explosion, the mammoth return to VC firm Venrock's 1978 investment in Apple surely helped to validate the model of skewed or long-tailed returns in investors' minds.
Netscape in 1994
Late 1990s VCs had POOR Returns
As Nicholas observes, the further escalation of VC activity during the late 1990s internet boom had a less happy ending.
2008+ IPOs of Large Big Tech
The four largest companies in the world by market capitalization — Microsoft, Apple, Amazon.com, and Google's parent, Alphabet — are all VC-funded tech companies.
- VC: An American History By Tom Nicholas - on evolution of VC institutions
Characteristics of VC firms
VCs are Financial Fund Intermediaries and play a central role in Startup Success
VCs raise funds from institutions and wealthy individuals, screen investments (often as many as 100 opportunities for every one in which the firm invests), and play an active role in the governance of the enterprises they back.
Very Skewed Returns - Few Winners Dominate!
VC returns do not follow a normal bell-shaped distribution but rather are skewed; most of the return to a VC portfolio comes from a few exceptional winners.
OUTLIER VCs that Outperform, do so for Long time
Unlike in public equity markets, the performance of a VC firm tends to be a strong predictor of future performance: VC firms that outperform tend to keep doing so.
This has been explained variously and likely due to a combination 1. Image and Reputation 2. Superior access to high-potential opportunities 3. Superior acumen in screening 4. Superior advising and governance of portfolio companies
Clusters of Similar Fundings and 4 of 100 survivors
Centers of New Technology - University and Industrial Parks
But how did the VC industry in California pull so far ahead? By 2018, VC firms in California had $228.2 billion in assets under management, swamping runners-up Massachusetts and New York at $59.5 billion and $56 billion, respectively. The changes in tax and pension policies were national, after all. While multiple factors were involved, Nicholas astutely highlights California's policy against enforcement of noncompete clauses, a policy that promotes free movement of labor and formation of spinoffs.
VC is an accessible business history of the industry, one that policymakers nationwide and, indeed, worldwide can learn from in thinking about how to encourage investment in startup innovation.